Case Study: Care Fees & Reducing Inheritance Tax

Our client was a widow, aged 70, who owned her own home and had a net income of £38,000 (with £33,000 of outgoings). This client had £50,000 in cash ISAs, £90,000 in deposit accounts, an ISA portfolio of £140,000, and an old investment bond with £60,000 invested, which was now worth £110,000. We advised there would be an inheritance tax (IHT) liability of £70,000 on her death, which would increase as her assets continued to grow. Although her two children were comfortably off, her four grandchildren were either starting careers or finishing university, so were facing more of a financial struggle.

Tax and Care Fees Concerns

Our client was used to helping her family out and she wanted to be in a position where she could continue to support them. However, she was concerned about the possibility of having to fund care home fees in the future, and she was also worried about her IHT liability.

Our Solution

Our financial planning team gave the following advice and support:

  • We helped her withdraw £40,000 from her bond without having to pay any tax, so she can make gifts to each grandchild. As long as she lives for 7 years (and this client was in good health), these gifts will fall outside her estate for IHT purposes, with a potential tax saving of £16,000. This will also leave the £3,000 annual capital gifting allowance available for her to make gifts to her children.
  • We advised her to set up regular payments of £250 per month to each grandchild, which amounts to £12,000 in total per year. Gifts out of income can help to reduce the IHT burden. This will be funded in part from her £5,000 surplus income (which will only accrue in her taxable estate), with the balance coming from switching her ISA funds from growth to income producing funds (ISA income is tax free).
How can we help you? Talk to us